UAE Real Estate Report 2016 H1

Dubai sales market forecasted to bottom out by end 2016; trend towards affordable development persists with increase in single-unit buyers expected in 2017

Government cuts to budgets expected to impact rental rates and sales transaction volumes in Abu Dhabi in H2 2016; 3% drop in rental rates recorded from Jan-June with 2% average decrease in apartment sales prices

Asteco has released a special Cityscape report on the current status of the UAE real estate market revealing a general slowdown in all emirates, but highlighting marked differences between Abu Dhabi and Dubai.

Dubai experienced a slow first six months, but for different reasons, with developers slowing the pace of project completions and handovers due to the forecasted oversupply of residential properties in the market, which prompted a slight decrease of around 2% and 1% respectively on rental rates for apartments and villas.

The cumulative effect of falling oil prices and the resulting cuts to government budgets over the last 18 months has been the catalyst for the slowdown in Abu Dhabi, where resulting job cuts in the last 6-8 months led to H1 2016 residential rental rate declines of 3% on average, with high-end units down by 4%; and a subdued sales market.

“We are seeing two unique pictures emerge for the residential sector in both emirates. What is interesting to note in Dubai is the decision of families to downsize and even send spouses and children home in an effort to save money,” said John Stevens, Managing Director, Asteco.

“We are seeing signs of this in Abu Dhabi with a migration or downsizing mainly from high-end large units, to more affordable developments; which has led to a rise in vacancy rates for larger units and which could prompt an increase in rental rates for smaller units in more desirable buildings,” added Stevens.

The Asteco report highlighted substantial interest in Jumeirah Village from both end users and investors with buyers recognising the potential of the community from a locational point of view in comparison to newer projects launched south of Mohamed Bin Zayed Road.

Apartment prices in most communities continued to be under pressure with an overall price reduction of 3% during H1 2016, however prices are still 64% higher than 2011. For the villa market, rates were broadly stable over the last six months with an average increase of 0.3%, with a trend towards smaller two to four-bedroom homes in communities such as Arabian Ranches, The Springs and Mudon, still prevalent.

“We expect to see further marginal declines in values over the next six months as the market looks likely to bottom out by year end with, at most, a 5% decline. This could be offset by potential increased transaction volume as lower prices unlock demand and stimulate renewed interest from single-unit buyers for soon-to-be-completed buildings.

“From a rentals perspective, demand for studio, one and affordable two-bedroom units is likely to remain strong, with a potential increase in rates in some areas as occupancy levels improve,” said Stevens.

Limited supply of new H1 released supply in Abu Dhabi helped to limit any major reduction in rental rates with just 800 apartments added including Wave Tower on Reem Island, resulting in an overall drop of 3%. This trend was replicated in the villa market, however at a reduced rate of just 1%.

Transaction levels in the capital have been largely quiet with asking rates still relatively high in comparison to other emirates (nominal 2% decline recorded) despite owners putting units back onto the market; and the ongoing lack of affordable units stymying prospective investors with limited budgets.

“We are still seeing good levels of demand for affordable products like the Al Ghadeer and Al Reef townhouses, with no decline in sales prices, which confirms the appeal, and shortage, of this kind of product in the market,” noted Stevens.

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